Bigger Picture

Today”s one thing is tax loss profits.

We need to start talking about the “January Effect.” It refers to downtrending stocks that suddenly rally after year-end, when tax loss selling pressure subsides. That is motivated by taxpayers wanting to utilize the paper loss in one stock they own, to offset the gain in another.

Sounds simple, right? It should be, but it”s a little more complicated than that. And I suspect it will be even more complicated in the marijuana sector.

No matter how complex, January Effect candidates will always have a unique advantage to other stocks. That is knowing well in advance exactly when at least one reason to sell will suddenly disappear. You can literally set your clock to it.

The January Effect is simple for one immutable law of the markets: Price is a function of supply (selling) and demand (buying). 

Price can fall because of falling demand, but also because supply is rising. When the supply is based on artificial reasons — for tax considerations instead of for investment quality — Price can suddenly stop falling and reverse up when selling slows, without any increase in demand.

Motivations behind supply and demand differ among people, seasons, times of day… The more varied the motivations, the more stable the market. Occasionally, many market participants are doing the same thing for the same reason. You”ve seen this effect most commonly as a reaction to a headline. But that”s over and done with in the blink of an eye.

The same principle is applied in slow motion when it comes to tax loss selling. It will only become more widespread as the deadline nears: December 31.

Through the years, of course, increasingly more sellers realized that waiting until the last minute often meant getting the lowest price. Hurriedly expending the supply This led to earlier bottoms among many tax loss candidates, so the “January” rally started coming earlier. So much earlier, that the rally enticed sellers to return for another round.

So, the January Effect is a simple concept of artificial supply suddenly ending. It was complicated a little by some investors accelerating their timing, which changed the cycle. And now the marijuana sector will add another degree of complexity: November”s elections.

That extra “January” effect rally has been peaking over the years into late-October / early-November. Marijuana stocks will on the one hand attract tax loss selling by diversified investors wanting to shelter other profits or income. Meanwhile, various marijuana initiatives around the country will presumably be motivating buyers. Perhaps a favorable reaction to passing the initiatives will be short-lived as it attracts the next round of tax loss selling.

As we keep our eye on these influences, keep in mind that not all tax loss sell-offs recover, especially marijuana stocks. The good news is that the January Effect may be very good for the marijuana sector — and possibly this year. The bad news is that it won”t apply to all marijuana stocks. The other bad news is that it won”t prevent the eventual winners from declining further first. We”ll be monitoring for opportunities among sector leaders that are fulfilling downside objectives. As for others, a sudden end to tax loss selling pressure won”t change their business prospects, or that their patterns are targeting zero.

This phenomenon isn”t limited to lower-priced stocks. Don”t hesitate to suggest any stock to review that has been declining through the year, and probably is trading below the cost basis of a majority of its shareholders. That”s the basis for even considering a January Effect candidate. The actual chart objective and technical indicator action determines the rest. I”ll maintain coverage on a growing list of stocks with their projected supports, triggers and targets.

[Note: I publish “The Universe” every weekend, updating my support and resistance calculations for Marijuana sector stocks. It is not a projection, but a handy reference… Non-Marijuana stocks are covered elsewhere during the week.]

Links to ||Last week”s Universe || Prior week”s Universe || Previous week”s Universe ||

We need to start talking about the “January Effect.” It refers to downtrending stocks that suddenly rally after year-end, when tax loss selling pressure subsides. That is motivated by taxpayers wanting to utilize the paper loss in one stock they own, to offset the gain in another.

Sounds simple, right? It should be, but it”s a little more complicated than that. And I suspect it will be even more complicated in the marijuana sector.

It”s simple, in this way: Price is a function of supply (selling) and demand (buying). Price can fall because of falling demand, but also because supply is rising. When the supply is based on artificial reasons — for tax considerations instead of for investment quality — Price can suddenly stop falling and reverse up when selling slows, without any increase in demand.

Motivations behind supply and demand differ among people, seasons, times of day… The more varied the motivations, the more stable the market. Occasionally, many market participants are doing the same thing for the same reason. You”ve seen this effect most commonly as a reaction to a headline. But that”s over and done with in the blink of an eye.

The same principle is applied in slow motion when it comes to tax loss selling. It will only become more widespread as the deadline nears: December 31.

A separate blog post on Monday will continue this discussion, and describe the two extra complexities. The good news is that the January Effect may be very good for the marijuana sector — and possibly this year. The bad news is that it won”t apply to all marijuana stocks. The other bad news is that it won”t prevent the eventual winners from declining further first.

Enjoy!

Interesting confluence of influences today. From the Scotland reaction, to Quadruple Witch, to Alibaba. A new high overnight, a morning slide, and a reversal from positive territory to negative.

A lot of stock comments were posted to the prior thread. Be sure to check it out if you have any interest in the following stocks. Post more requests to this thread if needing to make any last-minute moves.

BABA, VAPE, MCIG, CLR, CELG, ARNA, FULL, IBB, TKMR, TAUG, AAV

There”s no Livedesk today, so be sure to check the Activity Feed for my observations of opening action. Don”t forget about Friday Factors that make trend changes unlikely today. That means bottom-fishing isn”t often profitable. And it also means stocks that act in the morning like they”re bottoming often prove otherwise that afternoon.

Livedesk”s recording has been uploaded to the following link:
https://new.livestream.com/accounts/7617211/events/2865745

I repeated my earlier reviews (scroll down to prior post) to identify where my technical and charting methods were influencing the patterns:
TRTC, ATTBF, VPOR, TAUG, NLNK (not mentioned earlier, but discussed), TKMR, and NVLX.

That took us to the :20 minute mark, where I began reviewing the following requests:
RAD — Next support potential is 5.27, but bigger concern is whether the uptrend may even resume.
AMBA — Healthy, especially if today”s probe above prior highs is maintained.
NXPI — Healthy, but needs to continue asserting itself to get out of the current consolidation.
AAPL — Viewing the past week as an Ascending Triangle, targeting 106-107, and potentially 115.
MCIG — Still forming a Descending Triangle. Bottoming here still requires a fresh low touching .2405.
TIVO — Massive trading range.
BIMI — Very responsive to Fibonacci levels, but no discernible pattern.
YHOO — Probably too late for correction ahead of BABA trading, but that also means extending higher would more vulnerable to reacting down sharply.
GWPH — Recovering from recent probes under 87 support has been expending a lot of buying pressure that will be missed just when it is needed most, to prevent sliding through 84.40 to 75-77.